The Turkish Lira remained near a two-month low and its sovereign Dollar bonds plummeted as the election looked set for a runoff with incumbent president Tayyip Erdogan out in front.
The Lira was trading at 19.65 to the Dollar at the time of writing, after hitting 19.70 earlier on Monday, the weakest since an all-time low of 19.80 in March this year.
The currency was on course for its worst trading session since the beginning of November, Reuters reports.
President Erdogan and rival Kemal Kilicdaroglu were heading for a runoff vote on 28th May as neither reached the 50% of the vote for an outright win.
According to analysts, Erdogan’s stronger-than-forecast performance gave him the edge, the Reuters report adds.
“This is a major disappointment to investors hoping for a win for opposition candidate Kilicdaroglu and the reversion to orthodox economic policy he promised,” according to Hasnain Malik, head of equity research at Tellimer.
In addition, Turkey-issued Dollar-denominated sovereign bonds suffered a steep decline by over 7 cents, whilst the five-year Turkey credit default swap spread rose 114 basis points to 606, a high not seen since November last year, according to S&P Global Market Intelligence.
There was a rally last week in Turkish stocks and bonds when third-party presidential candidate Muharrem Ince withdrew from the election, bolstering expectations of a win for Kemal Kilicdaroglu.
The election results were “almost certainly negative for markets,” said Candriam senior fund manager of emerging market debt, Richard Briggs, who added that: “If Turkey continues to run large current account deficits, once those flows halt or reverse, pressure on the currency and the economy could be severe without a credible policy framework which is less likely under the existing administration.”
JPMorgan has forecast the Lira may reach 24-25 to the Dollar, whilst Goldman Sachs says the market is pricing the currency to weaken by 50% over the next year.
Since the beginning of the year, the Lira has fallen 5% and lost near to 95% of its value over the past 15 years, due to rampant inflation and currency market chaos.